Zero tax: schedule E losses from rental with passive income

[Roy Mitle]

I have a rental which has accumulated a lot of losses on schedule E. Mainly due to depreciation. I intend to not sell the rental and pass it on my kids. In that case they will get step up basis and won't have to care about depreciation recapture

So I am left with this massive carry forward losses.

In order to use that I think if I can get passive income then the passive income becomes tax free to me.

So how do I get passive income which comes on a K1. (Passive income which comes as stock dividends etc. is not useful to me for this purpose since that goes on schedule D). If it comes on a K1, I can put it into schedule E and offset my losses from my rental.

Is my thinking correct?